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Houston shifts to a performance-based budgeting system

Questica

February 4, 2016

In the face of a $126 million budget shortfall, Houston Mayor Sylvester Turner is using his first executive order to lead a push for performance-based budgeting that he says will increase transparency and accountability.

As Houston Public Media reported, Turner’s proposal would shift budgetary focus to examine how individual departments performed over the course of the year. This method would be utilized in lieu of an emphasis on maintaining funds received the previous year. Programs and departments failing to hit established performance goals would risk losing funding under the new system.

“We will hold ourselves accountable and will enable others to do the same by making city spending and performance information more transparent and accessible,” Turner said in a statement. “The shift to performance-based budgeting and management will take time, but we can make great progress as we begin to build the budget for the coming fiscal year.”

According to Turner’s executive order, the new budgetary process would eliminate “the cycle of budget shortfalls” by increasing visibility around departmental budgets, allocations and service provisions. The order also aims to establish specific performance goals around which budgets would be built, and increase public participation in determining the priorities of the city’s operating budget and Capital Improvement Plan.

As The Houston Chronicle reported, Turner has previously mentioned his desire to tackle the budget deficit through performance metrics. In his inaugural address, Turner stated rising pension costs and a recently passed cap on city property-tax collection would necessitate the need to overhaul the budget system. Without a fundamental change, the city would continue to run into deficits as expenses climb and revenue remained stagnant, Turner cautioned. Instead, the new system would reward city organizations for undertaking cost-saving procedures and fully utilizing their current funds.

“If we’re providing funding expecting certain outcomes and you don’t reach them, the notion is you don’t need that funding, and so you redirect those dollars to areas that can best meet their objectives, or you don’t allocate those dollars at all,” Turner said. Houston lawmakers will need to overcome a $126 million budgetary deficit by July 1.

A shift in procedure

As the Chronicle noted, the Houston City Council has previously used a line-item budget whereby factors such as salaries or janitorial services are itemized and incrementally increased over time. With a performance-based budget, funding decisions would instead be based on proven success or inefficiency, and would be applied per individual department or program instead of through minute increases across the board.

As the National Conference of State Legislators reported, performance-based budgeting is focused on how funding needs to change, as opposed to maintaining a steady funding base. This approach may offer lawmakers more flexibility in balancing their budgets. For example, by prioritizing goals and outcomes, municipalities can identify departments and programs that are already working toward the same ends. This allows the city to encourage inter-departmental relationships, eliminate overlap and save money through reducing inefficiencies. According to the NCSL, nearly half of state governments use the method to some degree, as do several municipalities.

According to The Chronicle, the shift to a performance-based system could signal a departure from the more short-term fixes Houston’s city council has used to balance budget deficits in the past, including selling city-owned land or deferring payments.

While several city officials praised the mayor’s executive order as a good start, many noted the city still has more work to do in order to create the process for shifting to a different budgeting model. Speaking with the Chronicle, Finance Director Kelly Dowe said the mayor’s proposal will need to be expanded upon in order to include specific instructions for managers and employees as far as establishing performance goals and identifying inefficiencies.

“At the core of priority-based budgeting is, you don’t start by telling me how many people you need or how many dollars you need or how much supplies you need,” Dowe said. “It’s you saying, ‘Here’s what I’m delivering,’ and then you start asking the question, ‘Are you doing it in the most efficient manner?’ ” The city council is working to balance the $126 million budget deficit by the start of the next fiscal year on July 1.

How Questica can help

Switching to a performance-based budget requires establishing clear objectives that are easily communicated across departments throughout the municipal government system. Meeting these goals further necessitates the need for granular insight into performance and a way to track progress that is organized and streamlined.

With Questica’s public sector budgeting software, municipal governments can comprehensively measure factors affecting complex financial decisions through a web-based, real-time budget platform. Questica’s Performance Module fosters clear communication across departments and programs as the city establishes quantifiable goals and methods for attaining them. The module also collects and analyzes data from multiple sources, allowing departments and programs to consolidate their performance-related information into one system, thereby increasing transparency and communication.

Municipal governments considering a switch to performance-based budgeting should contact Questica to learn more about how comprehensive and flexible budgeting and performance software can aid in defining organizational objectives and achieving desired outcomes.

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Questica’s budget preparation and management software suite – Questica Budget – Integrates with more than 25 financial systems, along other systems. This ensures organizations can access all the information they need to develop, track, monitor and adjust their budgets, plus report out to stakeholders when and to who they need to. Questica Budget Suite’s Operating, Salary, Capital and Performance modules ensure public sector organizations have a clear view into their budgets, forecasts and expenditures, thus enabling those organizations to deliver on their financial and non-financial strategic objectives. Additionally, Questica’s easy-to-use OpenBook transparency and data visualization software can be used to share an organization’s financial and non-financial information with both its internal and external stakeholders. To learn more about Questica and how our software solutions can help your organization – watch a product video, read one of our case studies/whitepapers or request a demo today!